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New York Lien Law § 38 states that the holder of a mechanic’s lien “shall, on demand in writing, deliver to the owner or contractor making such demand a statement in writing which shall set forth the items of labor and/or material and the value thereof which make up the amount for which he [or she] claims a lien, and which shall also set forth the terms of the contract under which such items were furnished.” In Associated Building Services Inc. v Pentecostal Faith Church, 112 A.D.3d 1130, 976 N.Y.S.2d 699 (3rd Dept. 2013), the Court held that a lienor is not always required to provide an itemization of labor and materials furnished to substantiate its mechanic’s lien.

The lienor argued that it was not required to provide such a statement because the labor and materials had been furnished pursuant to a construction contract that had been performed in full. The Appellate Court agreed. The Court found that the statute only required the lienor to supply an itemized statement when itemization is necessary to apprise the owner of the details of the lienor’s claim. Since there was a construction contract that the lienor alleged was performed in full, itemization would be “superfluous”. The Court reasoned:

“While [the] language [of Lien Law § 38] appears to confer an unrestricted right to an itemization of labor and materials, such is not the case … Itemization is instead required only when it is necessary to apprise the owner of the details of the lienor’s claim … .

Turning to the case at hand, plaintiff asserts that it performed the 2011 construction contract in full, and its claim with regard to that contract is based on an express contract for a specific sum” … Defendants do not dispute that they were fully aware of the terms of that contract and, indeed, they attached a copy of the written contract to their answer.”

The Appellate Division, Third Department, decision in Associated Building Services Inc., is in harmony with case law from New York’s First and Second Departments holding that itemization of labor and materials by lienor is not required with respect to balance of agreed price where it is claimed that the construction contract has been completed. 819 Sixth Ave. Corp. v. T. & A. Associates, Inc., 24 A.D.2d 446, 260 N.Y.S.2d 984 (1st Dept. 1965); Application of Pinckney, 13 A.D.2d 806, 216 N.Y.S.2d 19 (2nd Dept. 1961).

The requirement of an itemization will only excused in the limited circumstances where the lienor alleges that it has fully performed a fixed price contract. Itemization will be required if the lienor alleges that it partially performed the contract or if the lienor alleges that it performed extra or additional work to the contract.

On Friday, January 17, 2014, the Texas Supreme Court issued the long awaited and much anticipated Ewing Construction v. Amerisure Insurance opinion. You may have heard that the ruling was a big victory for contractors, but you are probably wondering what that means for contractor’s insurance coverage for construction defects. In a few words, the Texas Supreme Court told insurance companies that they cannot deny coverage for contractors based upon the “Contractual Liability Exclusion” unless the contractor has assumed liability in the contract over and above the duties they would have in the absence of a contract.

The primary question that the court answered was:

Does a general contractor that enters into a contract in which it agrees to perform its construction work in a good and workmanlike manner, without more specific provisions enlarging this obligation, “assume liability” for damages arising out of the contractor’s defective work so as to trigger the Contractual Liability Exclusion?

The court’s answer was simple. No.

Essentially, insurance companies like Amerisure were attempting to argue that simply by entering into a construction contract and agreeing to construct projects in a good and workmanlike manner that the “Contractual Liability Exclusion” excludes insurance coverage for construction defects. The Contractual Liability Exclusion that Amerisure relied upon in Ewing provided:

2. Exclusions

This insurance does not apply to:

. . .

b. Contractual Liability

“Bodily injury” or “property damage” for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement. This exclusion does not apply to liability for damages:

(1) That the insured would have in the absence of the contract or agreement; or

(2) Assumed in a contract or agreement that is an “insured contract” . . . .

In response, Ewing argued that the Contractual Liability Exclusion only comes into play when a contractor assumes liability that it did not have under general common law and that contractors already have a duty to construct projects in a good and workmanlike manner regardless of contractual language. The Texas Supreme Court agreed.

Bottom line: Contractors still have coverage for construction defects on construction projects where the contractor agrees to perform the work in a good and workmanlike manner unless some other exclusion or exception applies.

So when does a Contractual Liability Exclusion like the one above apply? Only when an insured assumes liability outside a duty that it would already have. This was the factual scenario presented in the Gilbert opinion that the Texas Supreme Court issued in 2010. In Gilbert, the Contractual Liability Exclusion applied because the contractor in that case agreed to assume liability for damage to property adjacent to the project that it ordinarily would not have in the absence of the contract provision.

If you are a contractor and you have been denied coverage based upon this exclusion, you should consider re-examining the claim that you made by contacting an attorney. Contractors should also review their liability coverage with their risk advisors, not only to determine whether they have contractual liability covered or excluded, but also to get a detailed understanding of their coverage.

We recently posted an article about whether silica exposure claims might emerge as the next toxic tort. A particular focus of that article was the Occupational Safety and Health Administration’s (OSHA) clearly increasing interest in the possibility of silica exposure, and its growing focus on related workplace safety initiatives. Concerned that OSHA’s heightened interest level was manifesting itself in proposed regulations that would be unduly burdensome on homebuilders if enacted, the National Association of Home Builders (NAHB) on Tuesday asked OSHA to rescind a proposed rule that would substantially reduce the permissible exposure limit (PEL) of crystalline silica for the construction industry. The reduction, if brought into effect, would require curtailment of PEL by 80%.

Among the more cumbersome and potentially costly aspects of the proposed rule are its requirements for extensive medical surveillance of construction industry workers, restrictions on certain construction site work practices (restrictions that run counter to existing safety procedures), and calls for enhanced record-keeping procedures.

Rule Would Be Economically and Technologically Unfeasible For Homebuilder Industry

By contrast, NAHB is recommending that OSHA use the existing PEL for silica in construction, at least until a comprehensive study conclusively demonstrates that the PEL must be made lower for important health reasons. NAHB has also advised OSHA to focus its mandated controls on tasks that have been established to be “silica-generating” by silica exposure monitoring data. The key, according to NAHB, is whether such tasks are generating high levels of silica exposure above the existing PEL.

NAHB believes that compliance with the proposed rule would be economically and technologically unfeasible. OSHA has estimated that the rule would cost the industry approximately $511 million to implement. Economic analysts estimate the cost to be closer to $2.2 billion per year, and likely to increase given the present state of the economy.

We will continue to monitor this skirmish between NAHB and OSHA, one with profound implications for the homebuilding industry.

New York’s highest court recently held that a policy limitation period, requiring a lawsuit to be brought within two years from the date of loss, is unreasonable and unenforceable…at least under certain circumstances.1

The case involved a loss to an office building severely damaged by fire. The policyholder had $1 million in insurance coverage for the loss. The insurance carrier paid the loss at actual cash value in the amount of $757,812.50. The policyholder made claim for replacement cost benefits under the policy. The insurance carrier notified it that to collect the remaining replacement cost benefits, it would have to provide proof of completion of the repairs. The policy said that the insurance carrier would not pay replacement cost value “until the damaged property is actually repaired or replaced,” and “unless the repairs or replacement are made as soon as reasonably possible.” The policy also had a provision requiring a lawsuit to be brought against the insurance carrier within two years from the date of loss. The policyholder had filed a lawsuit by the two year anniversary of the fire, but the insurance carrier successfully dismissed it by arguing it was premature since the replacement of the building was not complete.

The policyholder argued it acted reasonably in attempts to replace the damaged building, but was unable to do so before the second anniversary of the fire loss. The replacement building was completed in October 2010. The insurance carrier refused to pay the remaining $242,187.50 because the two year limitation period expired. The policyholder filed a second lawsuit against the insurance carrier because of that denial. The insurance carrier removed the case to Federal Court, and the District Court dismissed the case because it was beyond the two year limitations period of the policy for a lawsuit to be filed. The policyholder appealed to the United States Court of Appeals for the Second Circuit. The appellate court did not find a clear answer in New York state law on the issue involved, so it certified a question to the highest state court, the New York Court of Appeals. The question was:

If a fire insurance policy contains a provision allowing reimbursement of replacement costs only after the property was replaced and requiring the property to be replaced as soon as reasonably possible after the loss; and (2) a provision requiring an insured to bring suit within two years after the loss; is an insured covered for replacement costs if the insured property cannot reasonably be replaced within two years?

The Court of Appeals of New York held that “the contractual period at issue here—two years from the date of [loss] is not reasonable if, as the Second Circuit’s question requires us to assume, the property cannot reasonably be replaced within two years.” It should be noted that the court did reiterate that it has “enforced contractual limitation periods of one year,” and “there is nothing inherently unreasonable about a two-year period of limitation.”

The court elaborated further:

The problem with the limitation period in this case is not its duration, but its accrual date. It is neither fair nor reasonable to require a suit within two years from the date of loss, while imposing a condition precedent to the suit—in this case, completion of replacement of the property—that cannot be met within that two year period. A ‘limitation period’ that expires before suit can be brought is not really a limitation period at all, but simply a nullification of the claim.

The Court recognized that to hold otherwise would render the replacement cost value coverage insured for valueless just because the repairs are involved and time consuming.

Here, the insured did begin an action on the last day of the limitation period—and the insurer successfully argued that the action was brought too soon. It is unreasonable for it to now say, as it in substance does, that a day later would have been too late.

New York’s Court of Appeals answered the certified question in the affirmative. This was a well written opinion that achieves a result that makes common sense under the circumstances. It is always reassuring when the law makes common sense!

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